© Reuters. FILE PHOTO: The logo of Australia’s second-largest electricity retailer, AGL Energy Ltd, adorns its headquarters building in Sydney, Australia, on February 8, 2017. Photo taken on February 8, 2017. REUTERS/David Gray/File Photo
by Sonali Paul and Harshita Swaminathan
MELBOURNE (Reuters) – Australia’s largest power producer AGL Energy (OTC: ) on Monday abandoned plans to break up the company and said its chairman and chief executive would step down in a bid to bow to billionaire climate activists and Reuters. Opposition from major shareholder Mike Cannon-Brookes.
The AGL capitulation comes as the country’s biggest carbon emitter faces growing pressure to speed up the closure of its coal-fired power plants while funding renewable energy projects to ensure lights stay on in the country’s crumbling grid lights up.
AGL shares fell as much as 4.6% as the market opened.
AGL said the company insisted that a spin-off of its coal-focused power generation business was the best way forward, but Cannon-Brookes resistance meant it could not get the majority it needed in a shareholder vote.
AGL needs 75 per cent vote approval to split into energy retailer AGL Australia and power producer Accel Energy. Cannon-Brookes, which owns an 11.3 percent stake, argued the move would not help reduce emissions.
Shareholder Australian pension fund HESTA joined Cannon-Brookes in opposing the breakup of AGL, saying it did not see the split as supporting decarbonisation to meet the goals of the Paris climate agreement.
“Wow. Big day for Australia. Had to sit down and accept it,” Cannon-Brooks said in a post on Twitter (NYSE: ). “We embrace the opportunity of decarbonization with courage, tenacity and creativity. A lot of work, but we can do it,” he tweeted.
AGL said it would review its strategic direction, focusing on potential decarbonization initiatives, and further work with Cannon-Brookes’ investment vehicle, Grok Ventures, to discuss the way forward.
AGL added that it had already spent A$160 million ($114 million), while its estimated costs related to the spin-off were A$260 million.
“By failing to set Paris-aligned targets for the proposed spin-off, the AGL board ignored the fundamental demands of the majority of shareholders…they have now paid the price,” said Harriet Kater, head of climate at the Australia Centre for Corporate Responsibility, an investor advisory group.
“Not overly surprised”
The AGL board said it was committed to working with all stakeholders, including government, to decarbonise AGL’s business as quickly as possible, “while ensuring the stability of the energy system, energy affordability for retail and industrial customers and Appropriate shareholder value outcomes”.
AGL said chief executive and managing director Graeme Hunt would step down but would remain in his role until a successor was appointed. It added that it was also looking for an independent chairman, after which incumbent Peter Botten would resign.
AGL said a review of its strategic direction would include new approaches to alternative deals.
Earlier this year, AGL received a $5.4 billion takeover offer from Cannon-Brookes and Canada’s Brookfield Asset Management, but it was rejected in March. AGL is now valued at about A$5.92 billion.
“There is an opportunity for someone to come in and snap up AGL, but I don’t think AGL should be focusing on that,” said Jamie Hannah, associate director of investments at Van Eck, one of AGL’s top 15 shareholders.
“I think they should be resolutely focused on the long-term strategy of shifting to renewables and decarbonizing the grid,” Hannah said, adding that he “doesn’t feel excessive that the spin-off plan was cancelled ahead of a June 15 shareholder vote. surprise”.
(1 USD = 1.3980 AUD)